May 16, 2003
The Honorable John Snow
Secretary of the Treasury
Department of Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Dear Secretary Snow,
writing to express our concern about a proposed IRS regulation (REG-133254-02) that would force banks to report deposit interest paid to nonresident aliens. This rule would impose a harsh paperwork burden on
American banks and undermine the competitiveness of U.S. financial institutions. Simply stated, international investors surely will move their funds – potentially more than $100 billion – to banks in London, Zurich,
Hong Kong, and elsewhere if the regulation is finalized.
This regulation is particularly misguided since there is no need for the IRS to collect this information. For more than 80 years, Congress deliberately
has chosen not to tax nonresident alien bank accounts and not to require reporting of this information. The proposed regulation is therefore not only unnecessary, but also a clear violation of congressional intent.
We have no objection to government agencies making legislative recommendations, but we are deeply troubled when those agencies unilaterally change the law and undermine the democratic process.
regulation has attracted widespread opposition, and for good reason. The Federal Deposit Insurance Corporation is worried it could undermine the safety and soundness of our banking system. Taxpayer groups and think
tanks fear it will undermine tax reform. The financial services industry does not want a costly regulatory burden that will make them less competitive. And the Small Business Administration is concerned that
important regulatory procedures have been ignored.
These are all valid points, but the biggest drawback is that the regulation will hurt our economy.
When this regulation was first proposed at the end of the previous administration, foreigners responded in the first quarter of 2001 by withdrawing more than $40 billion (on an annualized basis) from U.S. savings accounts. We do not know how much money will leave the U.S. banking system if the regulation actually is implemented, in part because the IRS ignored the law and failed to conduct a cost/benefit analysis. But we do know that American consumers and businesses will have less access to affordable credit. We urge you to permanently withdraw this regulation.
Randy "Duke" Cunningham
Cc:Vice President Richard Cheney
CEA Chairman Glenn Hubbard
NEC Chairman Steve Friedman
Deputy Chief of Staff Josh Bolten